First Quarter 2007 Report Investment Trends Vol. 3, No. 1 ... · information retrieval system, without the written permission of RERC and the CCIM Institute. Investment Trends iii

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First Quarter 2007 ReportVol. 3, No. 1Investment Trends

Quarterly

iiInvestment TrendsQuarterly

Copyright® 2007 by Real Estate Research Corporation (RERC) and the CCIM Institute.

B.K. Allen, CCIMB.K. Allen Real EstatePotomac Falls, Virginia

Todd Clarke, CCIMNew Mexico ApartmentsAlbuquerque, New Mexico

Wayne D’Amico, CCIMProperty PoliticsEssex, Connecticut

Paul Fetscher, CCIMGreat American BrokerageLong Beach, New York

Stephen FurnaryING Clarion PartnersNew York, New York

Breck HansonLaSalle Bank, N.A.Chicago, Illinois

Charles LowreyPrudential Investment Management ServicesParsippany, New Jersey

Dennis MartinRREEF/DB Real EstateNew York, New York

Jeff Lyon, CCIMGVA Kidder MathewsSeattle, Washington

Buzz McCoyBuzz McCoy Associates, Inc.Los Angeles, California

Tom Nordstrom, CCIMAEGON USA Realty Advisors, Inc.Cedar Rapids, Iowa

Art PasquerellaBerwind Property Group, Inc.Philadelphia, Pennsylvania

Duncan Patterson, CCIMPatterson-Woods AssociatesGreenville, Delaware

Gary M. Ralston, CCIM, SIOR, SRS, CPM, CREFlorida Retail Development, LLCWinter Park, Florida

Cynthia Shelton, CCIMColliers ArnoldOrlando, Florida

Frank Simpson, CCIMThe Simpson CompanyGainesville, Georgia

Richard SokolovSimon Property GroupIndianapolis, Indiana

John Stone, CCIMJohn M. Stone CompanyDallas, Texas

Dewey Struble, CCIMSperry Van NessReno, Nevada

Julien StudleyJulien Studley, Inc.New York, New York

Allan SweetAMLI Residential Properties TrustChicago, Illinois

Garry Weiss, CCIMFirst Industrial Realty TrustChicago, Illinois

Sam ZellEquity Group InvestmentsChicago, Illinois

RERC~CCIM Investment Trends Quarterly

RERC Editorial Staff

PublisherKenneth P. Riggs, Jr.CFA®, CRE, FRICS, MAI, CCIM

Editor-in-ChiefBarb Bush

Lead AnalystBrian Velky

Research AnalystsCliff CarlsonAshley Smith

Design EditorLindsay Kalvig

Data ManagementBen Neil

Production CommitteeTerri CotterScott HamerlinckDaniel Warner

Research AssistantsCody ConradMorgan EvenBrooke RugeSteven SchlangeRajiv SharmaJackie Sorensen

CCIM Institute

PresidentJoseph A. Fisher, CCIM

President-ElectTimothy S. Hatlestad, CCIM

First Vice PresidentCharles McClure, CCIM

Executive Vice PresidentSusan Groeneveld, CAE

Director of Public RelationsEdward M. Bury, APR

CCIM Member Services CommitteeFrank Simpson, CCIMNicholas Miner, CCIM

Immediate Past Chairman,CCIM Member Services CommitteeWayne D’Amico, CCIM

Advisory Board Members

Copyright Notice for RERC~CCIM Investment Trends Quarterly

Copyright® 2007 by Real Estate Research Corporation (RERC) and the CCIM Institute. All rights reserved. No part of this publication may be reproduced, duplicated, or copied in any form, including electronic forwarding or copying, xerography, microfilm, or other methods, or incorporated into any information retrieval system, without the written permission of RERC and the CCIM Institute.

iiiInvestment TrendsQuarterly


RealEstateResearchCorporation

Founded in 1931, Real Estate Research Corporation is one of the longest-serv-ing and most recognized national firms devoted to real property research, valu-ation, real estate consulting, indepen-dent fiduciary services, and portfolio services.

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Offices located throughout the U.S., with headquarters in Chicago

LeadershipKenneth P. Riggs, Jr., CFA®, CRE, FRICS, MAI, CCIMCEO & President

Jules H. Marling, Jr. MAI, CREPartner & Senior Vice President

Del H. Kendall, MAI, CREPartner & Senior Vice President

Donald A. Burns, MAI, CRE, FRICSPartner & Senior Vice President

Austin D. MacMullan, MAI, CCIMPartner & Senior Vice President

Gregory P. Kendall, MAI, CREPartner & Senior Vice President

Standard PublicationsRERC Real Estate Report

RERC/CCIM Investment Trends Quarterly

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ExpertiseRERC’s expertise originates from a national presence and per-spective, coupled with local market knowledge gained through the completion of hundreds of engagements annually in every major market. Our clients have found that RERC is relationship-oriented, focusing first and foremost on our clients’ and custom-ers’ needs, and delivering the highest quality products and ser-vices. RERC is an SEC-registered advisor.

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Acknowledgements

REALTORS® Commercial Alliance of the National Association of REALTORS®

NAR PresidentPat Vredevoogd Combs, ABR, CRS, GRI, PMN

NAR Executive Vice President/CEODale A. Stinton

RCA Committee RepresentativeCindy S. Chandler, CCIM, CRE

NAR Vice President of Commercial Real EstateJames Marrelli

Real Estate Research CorporationFounded 75 years ago, Real Estate Research Corporation (RERC) was the nation’s first independent real estate firm that specialized in both real estate research and analysis. Recognized as a pioneer in the art of real estate management and for monitoring key sectors of the economy that influence the real estate industry, RERC has retained its place as one of the industry’s leading real estate investment trends analysts through the publication of such reports as Expectations & Market Realities in Real Estate and the RERC Real Estate Report. Today, RERC is known for its research publications and market studies, commercial property valuations, complex consulting assignments, portfolio management and technology services, independent fiduciary services, and corporate advisory services.

The CCIM InstituteThe CCIM Institute, headquartered in Chicago, confers the Certified Commercial Investment Member designation through an extensive curriculum of 200 classroom hours in addition to professional experience requirements. CCIMs are recognized experts in commercial real estate brokerage, leasing, asset management, valuation, and investment analysis, and form a business network encompassing more than 1,000 markets throughout North America, Europe, Asia and the Caribbean. There currently are more than 8,600 CCIM designees, with an additional 8,200 professionals pursuing the designation. CCIM Institute is an affiliate of the National Association of REALTORS®. Visit www.ccim.com.

REALTORS® Commercial Alliance of the National Association of REALTORS®

The REALTORS® Commercial Alliance (RCA) is the commercial division of the National Association of REALTORS® (NAR). The RCA represents the collective commercial real estate constituencies of NAR, including affiliated commercial organizations—the CCIM Institute, the Counselors of Real Estate (CRE), the Institute of Real Estate Management (IREM), the REALTORS® Land Institute (RLI), and the Society of Industrial and Office REALTORS® (SIOR). The RCA works to serve the needs of commercial practitioner members and shape and unify the commercial real estate industry through the development of valuable products and services, technology initiatives, public policy advocacy, education, research, and legal analysis.

The RERC/CCIM Investment Trends Quarterly is produced by Real Estate Research Corporation (RERC) in association with and for members of the CCIM Institute. The RERC/CCIM Investment Trends Quarterly is sponsored by the REALTORS® Commercial Alliance of the National Association of REALTORS®.

�Investment TrendsQuarterly


InThisVolume

Coming Soon!East RegionBaltimore, Boston, Charlotte, Hartford, Norfolk, Northern New Jersey, New York City, Pittsburgh, Philadelphia, Raleigh, Richmond, Washington, D.C.

South RegionAtlanta, Austin, Dallas/Ft. Worth, Houston, Memphis, Miami, Nashville, New Orleans/Baton Rouge, Oklahoma City, Orlando, San Antonio, Tampa

Midwest RegionChicago, Cincinnati, Cleveland, Columbus, Detroit, Indianapolis, Kansas City, Milwaukee, Minneapolis, Omaha, St. Louis, Toledo

West RegionDenver, Honolulu, Las Vegas, Los Angeles, Phoenix, Portland, Sacramento, Salt Lake City, San Diego, San Francisco, Seattle, Tucson

National OverviewEconomic SummaryEffect on Real EstateProperty Sector Highlights“Tampa Market Continues to Grow at a Steady Pace”Regional AnalysisScope & Methodology

3

Scope & Methodology

Metro-Level Analysis

Now Available!

2Investment TrendsQuarterly


Foreword

February 2007

Dear Readers,

We are pleased to present the first quarter 2007 RERC/CCIM Investment Trends Quarterly. Due in great part to your willingness to respond to the surveys and to sharing your transaction data, we have been able to include many more ob-servations from CCIM members in our analysis. In addition, we are now covering eight more metros in addition to the 40 covered last year. We think you will be pleased with the results.

The research and analysis in the RERC/CCIM Investment Trends Quarterly is brought to you as another no-cost member benefit to all CCIM designees. Regularly priced at $375/year, it is also offered at the exceptional discount of $189/year to CCIM candidates and affiliates of the National Association of REALTORS®.

Besides the national, regional, and metro analysis included in this report, we also are featuring information and analysis from Tampa and the Florida Gulfcoast Commercial Association of Realtors, Inc.® (FGCAR). We thank FGCAR for sharing their information.

We encourage you to share your transaction information as well. There are two ways of doing so:1) From a Property Listing in CCIMNet: ■ Add a property listing to CCIMNet or any Catylist Commercial Information Exchange (CIE), and ■ Change the status to sold or leased; then enter the transaction.

2) Add a Completed Transaction directly: ■ Login to either CCIM.com or CCIMNet, ■ Under the Professional Profile section, click the Manage Completed Transactions link, and ■ Enter the transaction.

As we look to 2007, our economy and the investment environment overall are far stronger than many of us would have anticipated. Inflation is mild, oil prices are at reasonable levels, and interest rates remain relatively low. With capital con-tinuing to flood the markets, we’re seeing near-record returns, including in real estate. RERC expects returns to continue into 2007, although perhaps not at the level seen in 2006. However, with more Americans than ever before in our nation’s history, working, shopping, and setting up households, demand for real estate will continue.

Best wishes for good health, good fortune, and a happy and prosperous new year.

Sincerely,

Kenneth P. Riggs, Jr., CCIM, CRE, MAICEO & President Real Estate Research Corporation (RERC)

Joseph A. Fisher, CCIM2007 CCIM Institute PresidentPresident, Real Estate Investment Services Corp.



ShapingtheMarket

■ Advance estimates show that real gross domestic product (GDP) increased at an annual rate of 3.5 percent for fourth quarter 2006. This increase follows a revised annual rate of 2.0 percent in third quarter and 2.6 percent in second quar-ter, according to final estimates reported by the Bureau of Economic Analysis (BEA). December 2006 was the 62nd consecutive month of positive economic growth. RERC anticipates GDP to grow at a rate of approximately 2.50 percent to 2.75 percent in 2007.

■ Due to “somewhat firmer economic growth and some ten-tative signs of stabilization in the housing market,” the Fed-eral Open Market Committee (FOMC) left the federal funds target rate at 5.25 percent at its January 31, 2007 meeting. The FOMC continues to keep an eye on inflation, although expectations are for the rate to remain at 5.25 percent for the next couple quarters.

■ According to the January 17, 2007 Federal Reserve Beige Book, economic activity increased moderately during fourth quarter 2006. Tourism spending, along with manufacturing spending, was generally up. Most districts saw strong lend-ing activity in the commercial real estate market, with con-tinued softening in residential construction.

■ The unemployment rate continued at 4.5 percent during December 2006, down from 4.9 percent a year ago. Ac-cording to the Bureau of Labor Statistics (BLS), profession-al and business services employment continued to expand in December, as did employment in health care. More than 7.2 million jobs have been created since 2003.

■ According to the Department of the Treasury, the fiscal year-to-date deficit of $80 billion is down approximately 33 percent compared to the same period last year. Further, December 2006 tax receipts are estimated to be $18 billion higher than a year earlier, prompting a monthly budget sur-plus of $40 billion (as compared to $11 billion in December 2005). Corporate income taxes were up 22.2 percent for the first fiscal quarter.

■ Corporate profits continue to increase. According to the BEA, profits from current production increased $61.5 billion in third quarter 2006 compared to a $22.7-billion increase in second quarter, while internal funds available for invest-ment increased $30.2 billion in third quarter compared to an increase of $1.1 billion in second quarter.

Mergers/Acquisitions Shape Market for 2007

The big financial news for 2006 was the record number of mergers and acquisitions (M&A). According to Thomson Financial, there was a total of $3.79 trillion of M&A activity worldwide, with 55 transactions valued at more than $10 bil-lion each. Further, private equity firms were involved in five of the top 10 largest transactions in the U.S., including the sale of Equity Office Properties to Blackstone Group at a record-breaking $39 billion (including $16 billion in debt).

This is quite a reversal from the commercial real estate de-pression of the 1990s, which was characterized by a liquidity crisis with no debt or equity capital to be found. As a result, big real estate companies sought relief in the public capital markets for debt and equity, and most large private real es-tate holdings went public and formed real estate investment trusts (REITs) to access capital. Today, due in great part to the deluge of domestic and global capital across all spec-trums, private capital sources with deep pockets are buying public companies and REITs.

The question is, how long can such activity go on? Will this cycle of cheap money continue in 2007? Is the private mar-ket priced right? How does this affect pricing in my market?

EconomicSummary



EconomicSummary

■ RERC/CCIM Investment Trends Quarterly fourth quarter 2006 survey respondents rated the U.S. economy at 6.3 on a 10-point scale, with a score of 10.0 representing an excellent economy and 1.0 representing a poor economy.

■ According to the BLS, fourth quarter consumer prices in-creased a seasonally-adjusted annual rate of 0.2 percent, increasing the consumer price index (CPI) to 2.5 percent for 2006. This compares with an increase of 3.4 percent in 2005.

■ Economic activity in the manufacturing sector for both new orders and production expanded in December 2006, ac-cording to the Institute of Supply Management. After drop-ping to 49.5 percent in November, growth registered at 51.4 percent in December, and averaged 53.9 percent for the year. Growth was led by apparel and allied products, followed by printing and related support activities, and plastics and rubber products.

■ New durable good orders rose 3.1 percent in Decem-ber 2006 from November, led by aircraft and core capital goods, according to the Commerce Department. However, orders for core capital goods fell at an annualized rate of 6.1 percent in fourth quarter 2006, the largest decline in nearly 3 years.

■ According to the Conference Board, the consumer confi-dence index increased to 110.3 in January 2007, up from a revised 110.0 in December 2006. The January index was the highest reading since May 2002. In addition, the outlook for the labor market improved somewhat, with the number of persons claiming jobs are “plentiful” up to 29.9 percent in January from 27.6 percent in December.

■ Although the University of Michigan index of consumer sentiment declined slightly to 91.7 in December 2006 from 92.1 in November, it was up from 91.2 in December 2005. Consumers indicated they are worried about declining val-ue in homes and the negative impact of a loss of jobs in construction. Even so, the index of consumer expectations remained favorable, at 81.2 in December 2006.

■ Consumers continued to shop in 2006, and as a result, total retail sales for the year were up 6.0 percent from 2005. Ac-cording to the U.S. Census Bureau, advance estimates for December 2006 retail and food services sales were $369.9 billion on a seasonally-adjusted basis, an increase of 0.9 percent from November, and up 5.4 percent from Decem-ber 2005. Electronics and appliance store sales were up 15.0 percent in December 2006 from a year earlier, while sales of health and personal care stores were up 10.2 per-cent from a year earlier.

NAR National Economic Outlook - January 20072006 2007 2008

2005 2006 2007 2008Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Annual Growth Rate

Real GDP 5.6 2.6 2.0 2.4 2.2 2.7 3.1 3.2 3.1 3.3 3.2 3.3 2.5 3.2

Nonfarm Payroll Employment 1.7 1.2 1.4 1.2 0.9 1.3 1.5 1.3 1.2 1.4 1.5 1.4 1.2 1.3

Consumer Prices 2.2 5.0 2.9 -2.2 3.6 2.9 2.6 2.4 2.8 2.8 3.4 3.2 2.2 2.6

Real Disposable Income 4.6 -1.5 4.1 5.7 3.7 2.4 2.9 2.9 3.4 3.0 1.2 2.7 3.4 3.1

Consumer Confidence 106 107 104 107 107 106 106 106 107 107 100 106 106 107

Unemployment 4.7 4.7 4.7 4.5 4.6 4.8 4.9 4.9 4.9 4.9 5.1 4.6 4.8 4.9

Interest Rates, Percent

Fed Funds Rate 4.5 4.9 5.3 5.3 5.3 5.3 5.3 5.3 5.0 4.8 3.2 5.0 5.3 4.8

3-Month T-Bill Rate 4.4 4.7 4.9 5.0 5.0 5.0 5.0 4.9 4.7 4.5 3.1 4.7 5.0 4.6

Prime Rate 7.4 7.9 8.3 8.3 8.3 8.3 8.3 8.3 8.0 7.8 6.2 8.0 8.3 7.8

Corporate Aaa Bond Yield 5.4 5.9 5.7 5.4 5.5 5.7 5.9 5.9 5.9 5.9 5.2 5.6 5.8 6.0

10-Year Government Bond 4.6 5.1 4.9 4.6 4.8 4.9 4.9 5.0 5.0 4.9 4.3 4.8 4.9 4.9

30-Year Government Bond 4.6 5.1 5.0 4.7 4.9 5.0 5.2 5.2 5.2 5.2 4.6 4.9 5.1 5.2

Source: Forecast produced using Macroeconomic Advisers quarterly model of the U.S. economy.Quarterly figures are seasonally-adjusted annual rates. Assumptions and simulations by Dr. David Lereah and Dr. Lawrence Yun.



TheEffectonRealEstate

■ According to recent survey results, CCIM designees and can-didates gave the apartment sector the highest performance rating out of the five major property types covered in the RERC/CCIM Investment Trends Quarterly. Many respon-dents expect interest rates to increase, forcing more would-be homebuyers to rent apartments rather than purchase homes, which will only strengthen the apartment market.

■ The residential real estate market was of concern to many CCIM designees and candidates. According to their survey re-sponses, the number of listings in the Multiple Listing Service (MLS) compared to monthly sales was quite disproportionate (one respondent in Ft. Meyers, Fla., noted that there were over 10,000 homes on the MLS with monthly sales at only around 600 to 650 homes).

■ Residential real estate activity has continued to slow, but the slower pace has begun to level off, according to the National Association of REALTORS® (NAR). Sales of existing homes in December 2006 were down only 0.8 percent from the rate reported in November, to a seasonally-adjusted annual rate of 6.22 million units. According to NAR, in general, prices have begun to stabilize and inventories have tightened.

■ The Commerce Department reported that single-family hous-ing starts declined in December 2006 at a seasonally-adjusted annual rate of nearly 1.23 million units, a 4.1-percent decrease from November. However, approximately 1.52 million single-family housing completions occurred in December, 0.3 per-cent above November completions. Also, nearly 1.16 million single-family building permits were issued in December, up 1.2 percent from November.

■ In addition, new home sales in December 2006 rose 4.8 per-cent over November sales, to a seasonally-adjusted annual rate of 1.12 million units, reports the Commerce Department.

■ According to the Commerce Department, the median home price declined 1.5 percent from year-ago figures to $235,000 per home.

■ Despite talk of a housing bubble, 2006 was the third highest year on record for home sales. Even so, for the full year, new home sales fell 17.3 percent, and according to NAR, sales of existing homes fell 8.4 percent. Together, sales of new and ex-isting homes totaled 7.54 units, down 9.78 percent from about 8.36 million units in 2005. Home builders sold roughly 1.1 mil-lion new homes in 2006.

■ With respect to the pricing of commercial real estate, some CCIM designees and candidates remarked that seller expec-tations are unreasonable and aggressive, given that some fundamentals have disappeared. Further, some transactions are happening at pricing levels that cannot be justified in the long term, but these sales are setting precedence for other sales.

■ According to McGraw-Hill Construction, the value of total new construction increased by approximately 4 percent in Novem-ber 2006 from October, reaching a seasonally-adjusted an-nual rate of $621.5 billion. Commercial construction increased around 14 percent in November to an annual rate of $212.5 billion. November residential building increased at an annual rate of $292 billion, about 4 percent higher than October. Sin-gle-family housing construction grew approximately 1 percent



TheEffectonRealEstate

after declining for several months, while multifamily housing construction jumped 18 percent.

■ The National Association of Real Estate Investment Trusts (NAREIT) reported a total return of 34.35 percent for 2006, outperforming all other major U.S. equity market benchmarks for the seventh consecutive year. Further, the U.S. real estate investment trust (REIT) industry has outperformed other major benchmarks of U.S. equities for the past 35 years.

■ The top-performing REIT industry sector was the of-fice sector (with 45.22 percent return), due to steady economic growth, increased employment and demand, limited new construction, and significant acquisition ac-tivity. High performance was also noted in health care REITs (with 44.55 percent return), self-storage REITs (with 40.95 percent return), and apartment REITs (with 39.95 percent return).

■ According to RERC’s analysis of CCIM member re-sponses for fourth quarter 2006, the industrial ware-house sector, at 9.3 percent, has the highest internal rate of return (IRR), while the apartment sector had the lowest IRR, at 8.3 percent.

■ RERC’s analysis of CCIM designee and candidate re-sponses for fourth quarter 2006 showed that at 6.6 per-cent, the apartment market had the lowest capitalization rate, while the hotel market had the highest capitaliza-tion rate, at 8.3 percent.

■ With declining vacancies and increasing rents, some tenants, especially office and industrial sector tenants, are starting to move away from the cities and moving towards suburban areas. In addition to reducing rental expense, suburban areas offer land on which to build, a generally well-educated workforce, and a higher-quality lifestyle. There is also stronger investor interest in sec-ondary and tertiary markets.

In Summary...

The U.S. commercial real estate markets will continue to strengthen. Most sectors are gaining rental rate pricing power.

Although the apartment market remains strong, the resi-dential real estate market is not seeing as big a downturn as many had forecast. As a result, apartment growth may not be as strong as anticipated.

The capital markets will be flush and will continue to pro-vide money at very favorable rates. RERC expects long-term rates to remain low in 2007.

Although there is still some capitalization rate compres-sion within the commercial real estate market, the rate of compression is slowing dramatically. The market is be-coming one of less rapid returns, and is returning to the trend of requiring longer holding periods in order to earn a return on investment.

What Do the Financial Markets Tell Us?Compounded Annual Rates of Return as of 12/31/2006Market Indices 1-Year 3-Year 5-Year 10-Year 15-Year

Consumer Price Index 3.73% 2.83% 2.68% 2.87% 2.90%

10-Year Treasury Bond* 4.79% 4.45% 4.40% 5.03% 5.55%

Dow Jones Industrial Average 16.29% 6.04% 4.46% 6.81% 9.56%

NASDAQ Composite 8.27% 7.51% 4.22% 6.53% 10.50%

NYSE Composite 17.86% 12.24% 7.94% 8.22% 9.24%

S&P 500 13.62% 8.45% 4.32% 6.71% 8.50%

NCREIF Index 16.60% 17.05% 13.38% 12.79% 9.95%

NAREIT Index 34.02% 23.70% 22.49% 13.72% 14.67%

*Based on Average End of Month T-Bond Rates Sources: Economy.com, NCREIF, NAREIT, compiled by RERC



Real Estate Indicators - 4Q 2006

Performance Indicators Recent Data Impact on Commercial Real Estate

Consumer ConfidenceSeptember 2006 = 104.5 October 2006 = 105.1 November 2006 = 105.3 December 2006 = 109.0

Consumer confidence is certainly back, closing out the year at 109.0, and the end of January at 110.3. The increase in consumer confidence is a result of lower energy prices, a relatively mild winter, a resilient job market, record-breaking stock market performance, and possibly the realization that the economy is resilient and stronger than many had expected. Since consumer spending accounts for two-thirds of overall economic activity, expect the most impact on the retail and hospitality sectors, which rely heavily on consumer spending.

10-Year Treasury Rates

September 29, 2006 = 4.64% October 31, 2006 = 4.61% November 30, 2006 = 4.43% December 29, 2006 = 4.71% January 23, 2006 = 4.81%

The federal funds rate remains unchanged 5.25% since June 28, 2006. Although inflation remains a risk, it is likely that the Federal Reserve will leave the rates unchanged for the near term. In the fourth quarter 2006, we experienced a slight increase in long-term treasury rates. Conversely, short-term rates declined slightly during fourth quarter 2006, which could serve as a leading indicator of a correction in the yield curve. Overall, the current long-term rates, which remain historically low, continue to stimu-late the investment environment for real estate investors.

S&P 500 IndexJune 30, 2006 = 1.76% 2Q06 YTD Return September 30, 2006 = 7.01% 3Q06 YTD Return December 31, 2006 = 13.62% 4Q06 YTD Return January 24, 2007 = 0.68% YTD Return

Stock market performance hit record high after record high in the second half of 2006, particularly in fourth quarter 2006. However, questions con-tinue to loom throughout the investment arena – is this strong performance sustainable into 2007, and for how long? The uncertainty associated with the stock markets, as well as the continued strong performance in the commercial real estate sector, is likely to continue drawing capital toward commercial real estate.

Vacancy RatesOffice (TWR) = 12.2% down from 12.9% in 3rd Quarter Industrial (TWR) = 9.7% up from 9.6% in 3rd Quarter Retail (TWR) = 8.0% down from 8.1% in 2nd Quarter Apartments (Reis) = 5.4% down from 5.9% in 3rd Quarter

The real estate space markets generally continued to strengthen, and ex-cept for the industrial sector, vacancy rates continue to decline. The of-fice sector saw the biggest decline in vacancy, as a stronger work force has demanded more space. The apartment market also saw a healthy decrease in vacancy, as overpriced markets, in conjunction with increas-ing interest rates, have continued to force would-be homebuyers out of the market. The retail sector, which was clouded with negativity during the past few quarters, saw a slight decrease in vacancy, as consumer confidence increases.

Rental Rates

RERC's surveyed rent growth expectations are: Office = 1.5% to 2.0% Industrial = 2.6% to 2.7% Retail = 2.9% to 3.6% Apartment = 3.8% Hotel = 2.1%

Rental growth expectations for all of the property types decreased dur-ing fourth quarter 2006, except in the apartment sector, which increased slightly. While the overall average may have decreased, however, rental growth is very market-specific, with some markets seeing very strong rent growth. The slight decreases experienced by the majority of the property types brought the rates closer to levels of inflation and long-term average rent growth.

Real Estate Returns

RERC Required Returns: Office = 8.1% to 8.7% Industrial = 8.8% to 9.3% Retail = 7.9% to 8.8% Apartment = 7.6% Hotel = 8.3%

NCREIF Realized Returns: Office = 16.2% to 23.8% Industrial = 17.1% to 17.4% Retail = 11.2% to 14.1% Apartment = 14.6% Hotel = 23.6%

Based on the record-setting year for transaction activity, it is not surprising to see yet another stellar quarter for the commercial real estate market, and for the office sector in particular. Overall, the real estate market continues to deliver strong returns (based on NCREIF realized returns), with retail power centers bringing in the tail-end at a solid 11.2%. Still, a large portion of the reported returns have been generated through strong capital appre-ciation, and with cap rates and discount rates appearing to have bottomed out in most markets, we expect slightly lower returns in 2007.

Capitalization Rates

RERC Required Cap Rates: Office = 7.2% Industrial = 7.4% Retail = 6.9% Apartment = 6.3% Hotel = 8.7%

NCREIF Implied Cap Rates: Office = 5.9% to 6.6% Industrial = 6.3% to 6.8% Retail = 6.4% to 6.5% Apartment = 5.4% Hotel = 8.6%

The core property types remain relatively stable from the prior quarter, which is no surprise given their low relative levels. The abundance of com-mitted capital (largely from defined contribution plans) to commercial real estate has created a very competitive transaction market, causing strong capital appreciation and lower income returns. However, cap rates have bottomed out in most markets, and asset management will become abso-lutely critical to income-generating growth and value creation.



NAR Commercial Forecast (January 2007)

2006 2007

2005 2006 2007 I II III IV I II III

OFFICE

Vacancy Rate 13.5% 13.1% 12.9% 12.9% 12.7% 12.5% 12.3% 13.6% 12.9%12.1%

Net Absorption (‘000 sq. ft.) 13,314 21,011 19,771 19,645 19,198 19,033 16,640 90,280 73,741 71,731

Office Employment (thousands) 16,457 16,539 16,654 16,749 16,840 16,918 17,005 16,338 16,749 17,102

Completions (‘000 sq. ft.) 9,344 11,974 13,326 22,530 14,682 13,437 12,723 36,282 57,174 51,495

Inventory (millions sq. ft.) 3,266 3,278 3,291 3,314 3,329 3,342 3,355 3,257 3,314 3,365

Rent Growth 1.3% 0.9% 1.1% 1.0% 1.0% 1.3% 1.4% 5.2% 4.3% 5.2%

INDUSTRIAL

Vacancy Rate 9.9% 9.7% 9.5% 9.5% 9.4% 9.3% 9.0% 9.9% 9.5% 9.0%

Net Absorption (‘000 sq. ft.) 27,669 54,679 51,554 57,391 61,221 55,929 55,843 295,817 191,293 231,078

Industrial Employment (thousands) 10,193 10,185 10,186 10,211 10,239 10,266 10,295 10,175 10,211 10,322



Rent Growth 0.4% 0.2% 0.4% 0.7% 0.8% 0.9% 1.0% 2.9% 1.7% 3.8%

RETAIL

Vacancy Rate 7.8% 8.1% 8.0% 8.1% 8.1% 8.1% 8.1% 7.2% 8.1% 8.1%

Net Absorption (‘000 sq. ft.) -4,211 -351 7,282 4,036 3,550 4,530 5,208 30,479 6,756 18,114



Rent Growth -0.9% -0.6% 0.5% 0.6% 0.5% 0.3% 0.2% 2.9% -0.4% 1.2%

MULTIFAMILY

Vacancy Rate 5.5% 4.6% 4.8% 5.4% 5.3% 5.1% 4.8% 6.2% 5.4% 5.4%

Net Absorption (Units) 123,497 114,748 50,754 -29,001 66,067 79,973 91,136 350,975 259,996 207,371

Completions (Units) 54,990 56,844 57,478 52,554 55,448 56,038 55,084 203,343 221,886 220,924

Inventory (Units in Millions) 13.6 13.7 13.7 13.8 13.8 13.9 13.9 13.6 13.8 14.0

Rent Growth 1.0% 1.1% 1.1% 1.1% 1.0% 0.9% 1.0% 2.9% 4.3% 3.9%

Sources: NAR, Torto Wheaton Research



National Market Analysis - 4Q 2006RERC Price vs. Risk Assessment

OfficeStrong Upside Dallas/

Ft. Worth Denver Baltimore

Fully Priced San Francisco Raleigh Columbus

IndustrialStrong Upside Orlando Minneapolis Tucson

Fully Priced Detroit Boston Austin

RetailStrong Upside Tampa Denver Boston

Fully Priced Columbus Austin Richmond

ApartmentStrong Upside Honolulu Austin Pittsburgh

Fully Priced New York City Salt Lake City Oklahoma City

HotelStrong Upside Chicago Atlanta Phoenix

Fully Priced Cleveland Portland Northern New Jersey

*Relative earnings are based on RERC’s economic cashflow forecast. Market risk assessment is based on a measure of the average sale price vs. relative earnings among the 48 markets RERC tracks each quarter.

National Transaction Breakdown (Jan. 1, 2006 - Dec. 31, 2006)Office Industrial Retail Apartment Hotel Total

Volume (in millions)<$2 million $2,307 $4,047 $4,070 $5,669 $220 $16,312

$2-5 milion $3,910 $5,701 $6,222 $5,910 $926 $22,668

>$5 million $155,131 $32,581 $50,896 $87,663 $33,689 $359,961

All $161,348 $42,328 $61,188 $99,242 $34,835 $398,942

Unit Price Averages<$2 million $103 $68 $103 $92,566 $53,998 –

$2-5 milion $167 $96 $216 $128,810 $59,767 –

>$5 million $209 $104 $250 $126,410 $137,649 –

All $167 $83 $169 $107,833 $110,713 –

Median of all $137 $66 $123 $86,170 $82,776 –

Capitalization Rates (All)Range 4.7 - 10.5 4.8 - 11 4.4 - 10.4 3.8 - 10.6 5.7 - 12.3 3.8 - 12.3

Average 7.2 7.4 6.9 6.3 8.7 7.3

NationalMarketAnalysis

Investment Conditions Ratings* - 4Q 2006Office 6.2

Industrial 6.8

Retail 6.8

Apartment 7.0

Hotel 6.5*Ratings are averages based on responses to surveys from CCIM designees and candidates for fourth quarter 2006.

OfficePropertySector

�0Investment TrendsQuarterly


■ CCIM Institute designees and candidates gave the office sector an investment conditions rating of 6.2 (on a scale of 1 to 10, with 10 being high) for fourth quarter 2006. The office sector received the lowest rating of the five major property types tracked in the RERC/CCIM Investment Trends Quarterly.

■ According to RERC’s analysis, the fourth quarter 2006 transaction-based capitalization rate average for the office sector was 7.2 percent.

■ According to CB Richard Ellis, the average vacancy rate for office space during fourth quarter 2006 was 10.8 percent for central business district (CBD) office properties and 13.6 percent for suburban office properties. Among the major markets RERC covers, the Charlotte market had the lowest vacancy rate for CBD office space, and Detroit had the highest vacancy rate for CBD office space.

■ Among the major markets covered by RERC, Houston saw the biggest decrease in CBD office vacancy during fourth quarter 2006, while Toledo saw the biggest increase in vacancy, according to CB Richard Ellis.

■ As new technology-based amenities like security monitors, card access systems, and new elevator systems become available in the office sector, property managers must keep updating in order to remain competitive, or risk losing tenants to those managers that do provide additional services.

Office Risk-Adjusted Returns

Average Capitalization Rate - 4Q 2006

Average Price Per Sq. Ft. - 4Q 2006

��Investment TrendsQuarterly


IndustrialPropertySector

■ CCIM Institute designees and candidates gave the industrial sector an investment conditions rating of 6.8 (on a scale of 1 to 10, with 10 being high) for fourth quarter 2006. This rating was equal to the rating given to the retail sector, and tied for second highest among the five property types tracked in the RERC/CCIM Investment Trends Quarterly.

■ According to CB Richard Ellis, the average availability rate for industrial space during fourth quarter 2006 was 9.7 percent on a national basis. Of the major markets RERC covers each quarter, Tampa and Portland had the lowest industrial availability rates, both at 4.8 percent, while Atlanta had the highest industrial availability rate at 20.4 percent.

■ CCIM Institute designees and candidates reporting from the Midwest industrial market stated that while the inventory of good industrial space is limited, it is not in particularly high demand, as there has been a major loss of manufacturing jobs and the vacancy rate is as high as 14 percent in some areas in Ohio. However, a survey respondent from the Minneapolis/St. Paul area noted that the industrial market is expanding, while respondents in the St. Louis area reported that industrial properties are hard to find and are quite pricey.

■ According to RERC’s transaction analysis, the fourth quarter 2006 capitalization rate average for industrial properties was 7.4 percent.

■ According to most reports, the industrial real estate market is doing well. The sector is seeing increased construction, declining vacancy rates, and increasing rental rates, which are expected to continue well into 2007.

Average Capitalization Rate - 4Q 2006 Average Price Per Sq. Ft. - 4Q 2006



RetailPropertySector


■ CCIM Institute designees and candidates gave the retail sector an investment conditions rating of 6.8 (on a scale of 1 to 10, with 10 being high) for fourth quarter 2006. This rating tied with the rating for the industrial sector, and was second among the five property types tracked in the RERC/CCIM Investment Trends Quarterly.

■ The availability rate for the retail sector decreased slightly from last quarter, and now stands at 8.0 percent, according to Torto Wheaton Research.

■ Several respondents to the survey for the RERC/CCIM Investment Trends Quarterly noted that in some regions of the U.S. that are highly tourist-driven such as Florida, retail is strong nearly all of the time, regardless of the economy overall.

■ According to RERC’s transaction analysis, retail properties have an average capitalization rate of 6.9 percent in fourth quarter 2006. This is the second lowest capitalization rate among the property types covered in this report, above the capitalization rate for apartments (correction).

■ As long as supply does not get ahead of demand, retail performance can do well during the next year or two. However, retail investment will become more risky in those areas where job loss is a factor, such as the Midwest, which will be affected by unemployment in the automotive industry.

■ With the larger discount and superstores competing with traditional grocery stores for food sales, grocery-anchored retail centers are not the safe havens they were in the past. Regional malls, which are more dependent on consumers’ discretionary income, may be the retail subsector most at risk as interest rates increase.



ApartmentPropertySector

■ CCIM Institute designees and candidates gave the apartment sector an investment conditions rating of 7.0 (on a scale of 1 to 10, with 10 being the highest rating) for fourth quarter 2006. The apartment sector received the highest rating given to any of the property types tracked by RERC for the RERC/CCIM Investment Trends Quarterly.

■ Average vacancy in the apartment sector increased to 5.9 percent during fourth quarter 2006 from 5.4 percent during third quarter, according to Reis. Inc. The increase—the greatest quarterly jump since first quarter 2003—was due in part to an increase in rental rates, as well as an increase in the supply resulting from failed condominium projects being converted to rental units.

■ According to RERC’s transaction analysis, the fourth quarter 2006 average capitalization rate for the apartment sector was 6.3 percent.

■ Apartment demand remains relatively high on a national basis, due to high home prices that continue to keep some would-be homebuyers in the rental pool. In some areas, apartment supply is increasing as units revert back to rental space in areas that were over-supplied with condominiums. In other areas, apartment supply remains constrained due to condominium conversions.

■ As the U.S. population increases (approximately 2.5 million per year) and with the difficulty of building new apartment properties, the apartment sector generally will remain strong in 2007. Also, demand for “workforce housing,” a newer segment of the affordable housing sector often located in high-growth markets, continues to grow. Built for working families, the apartments are built using less expensive materials, and often contain smaller units to help keep rental rates low.




HotelPropertySector

■ The hotel sector earned an investment conditions rating of 6.5 (on a scale of 1 to 10, with 10 being high), according to CCIM Institute designees and candidates.

■ Several respondents noted that new hotel developments are moving to suburban areas and away from CBD districts.

■ According to Smith Travel Research, the hotel occupancy rate was 68.5 percent at the end of third quarter 2006. This represents a 0.7-percent decrease in the occupancy rate recorded during the same time a year earlier. Revenue per available room (RevPAR) was $66.71, an increase of 6.0 percent from 1 year ago.

■ RERC’s transaction analysis indicates that hotel properties saw a 12-month trailing average capitalization rate of 8.7 percent during fourth quarter 2006.

■ According to PFK Hospitality Research, hotel profits were up during the last year, with gross operating profit for the typical U.S. hotel increasing 13.1 percent from the first half of 2005 to the first half of 2006. Expenses (including such things as salaries and employee benefits) were up 7.8 percent during the same time period.

■ As fundamentals strengthen in the U.S. hospitality market, prices for hotel properties, along with refurbishments and remodeling, have begun to increase.

■ California has the strongest hospitality market in the nation due to high customer demand and a limited supply of hotel rooms, according to Ernst & Young LLP.




By Edward M. Bury, APR

Construction cranes in and around Tampa’s traditional business district and in surrounding areas signal continued new office and residential development in Florida’s fast-growing Gulf Coast metro area. Fueled by a robust job market and strong investment activity, Florida’s third largest city – which includes St. Petersburg and Clearwater – clearly is booming.

More than 500,000 square feet of new Class A office product is nearing completion. Delivery of this new Class A office space is not scheduled until early 2007, a development that has strengthened asking rates for existing comparable properties. Shrinking vacancies are keeping rental rates high for remaining properties. Suburban submarkets like the Westshore, Northwest, and I-75 Corridor combined for 809,884 square feet of absorption for the year. The office sector’s occupancy level in the I-75 Corridor is the highest in 20 years.

In the popular Westshore submarket, for example, the average rate for Class A space jumped $3.67 per square foot from the beginning of 2006 to the end of fourth quarter at $27.22 per square foot.

Activity has been positive for Class B properties as well. Asking rental rates have moved upward, as over 450,000 square feet were absorbed during third quarter 2006. Class B space achieved a significant gain last year, rising from $18.23 to $19.43 per square foot.

Although there is tremendous development in the traditional office markets, some businesses are looking to areas in

non-traditional areas. Heidt & Associates, a civil engineering firm, broke ground on a $12 million, 53,000-square-foot headquarters building in the popular Ybor City district. The company will relocate 175 employees to the neighborhood northeast of downtown in early 2007.

Multiple residential and mixed-use projects are nearly complete. In the Channel District on the downtown eastern boundary, projects like the Towers and Channelside, Ventana, and The Place are taking shape on a daily basis.

Job growth is a key factor behind the market’s sustained growth. Florida’s job growth was the fastest in the nation in 2006, adding 215,200 jobs. The Tampa-St. Petersburg-Clearwater metropolitan statistical area (MSA) accounted for 26,800 of those positions. And the outlook remains rosy; a national survey indicates that 30 percent of local companies plan to hire more workers.

Investors have not lost out on capitalizing on the potential for solid returns in Tampa. A total of 4.6 million square feet of office inventory was sold in 2006, totaling $653 million in transaction value. That’s the highest annual volume since 2005. The biggest single-building transaction was the sale of a landmark office tower, the 38-story, 743,201-square-foot Tampa City Center, for $87.8 million. Also, a three-building office portfolio at Regency Park North totaling 202,076 square feet sold for $39 million.

Data and insight courtesy of the GVA Advantis Tampa office. Special thanks to the Florida Gulfcoast Commercial Association of Realtors®. Visit www.fgcar.org.

Tampa Market Continues to Grow at a Steady Pace



DataAnalysis

■ The majority of transactions that oc-curred during the trailing 12 months ending December 31, 2006, and were reported by the Florida Gulf-coast Commercial Association of Re-altors, Inc. (FGCAR), was for prop-erties selling between $2 million and $5 million.

■ According to RERC’s analysis of FG-CAR-reported transactions, office properties sold for an average price of $134 per square foot, which is slightly above the South regional av-erage but well below the national av-erage. However, the average trans-action-based capitalization rate on the office sales provided by FGCAR was well below both regional and na-tional levels, indicating a higher re-turn for a smaller initial investment.

■ The average sale price per square foot for industrial space reported by FGCAR was $76. This is higher than the South regional average, but lower than the national average. The transaction-based capitalization rate for industrial properties was lower than both the regional and national rates, allowing for higher returns.

■ According to analysis of FGCAR data, retail properties were selling for an average price of $113 per square foot. This is well below both the South regional and national averages. The average transaction-based capital-ization rate for retail space was 6.9 percent, the same as that for the na-tion, but lower than that of the South region, indicating that area returns are similar to those nationally, but with a lower initial investment.

■ Apartment properties also sold for prices that were well below both re-gional and national averages, while the average transaction-based capi-talization rate was 10 basis points lower than the regional rate and 10 basis points higher than the national rate. This indicates that apartment returns in the area are at levels near regional and national levels, despite having lower sales prices.

■ All of the property sectors show low pricing and high returns, according to FGCAR data, demonstrating that the area has great investment op-portunity.

RERC Analysis of Tampa Market

FGCAR Transaction Breakdown (Jan. 1, 2006 - Dec. 31, 2006)Office Industrial Retail Apartment Hotel

Volume (in millions)<$2 million $9 $13 $9 $3 –

$2-5 milion $13 $3 $5 $2 –

>$5 million – – – – –

All $22 $16 $14 $5 –

Unit Price Averages<$2 million $112 $78 $114 $58,328 –

$2-5 milion $188 $48 $106 $26,415 –

All $134 $76 $113 $51,945 –

Median of all $106 $76 $91 $41,667 –

Capitalization Rates (All)Range 5.3 - 8.8 5.1 - 8.5 5.2 - 8.6 4.8 - 8.0 6.2 - 10.3

Average 7.0 6.8 6.9 6.4 8.2

According to some reports, Florida’s job

market leads the nation. More

than 20,800 new jobs were added

in the Tampa area in 2006, GVA Advantis

reports.



NationalTransactionBreakdown

RERC Transaction BreakdownsAs brokers, buyers, sellers, appraisers, and other professionals associated with real estate values are well aware, all real estate transactions are not created equal. The value of a property can vary greatly depending on property type, size of property, condition, location, and many other factors. Comparing a property to other similar properties at a known or average price is especially helpful in determining the value of the property in question.

Real Estate Research Corporation (RERC) is pleased to announce that due to the higher quality and quantity of the raw research provided by individual CCIM members and organizational research contributors, the infor-mation is now robust and credible enough for us to further separate and bifurcate the raw transaction data we receive according to the size of the transaction or sales price. By reporting transactions of a certain value only, one tends to get a distorted picture of the market. But by breaking out the research according to size of the sale (or price), along with the property type and region, one can get a more realistic and credible view of the market. You will notice that this analysis is grouped by the number of transactions, total volume (in millions), and aver-age and median sale prices per unit. We expect this additional analysis to be useful to you as you benchmark your property value decisions.

In addition to categories by property type, our transaction research is now separated according to the price of the sales transaction on a national, regional, and metro level. Specifically, information can be disseminated ac-cording to:

National Transaction Price Breakdowns/Tiers■ Transactions with Sale Prices of $2 Million and Less■ Transactions with Sale Prices of $2 Million to $5 Million■ Transactions with Sale Prices of More than $5 Million

Regional Transaction Price Breakdowns/Tiers■ Transactions with Sale Prices of $2 Million and Less■ Transactions with Sale Prices of $2 Million to $5 Million■ Transactions with Sale Prices of More than $5 Million

Metro Transaction Price Breakdowns/Tiers■ Transactions with Sale Prices of $5 Million and Less■ Transactions with Sale Prices of More than $5 Million

RERC’s research and analysis has been the foundation for the RERC/CCIM Investment Trends Quarterly, and as the transaction database has become more robust, we are able to expand upon our analysis to offer you additional market knowledge related to transaction price breakdowns or tier levels. We are confident that this further analysis will allow you to make more accurate projections and insightful decisions related to your sales and transactions. Watch for further analysis as RERC continues to provide research in the RERC/CCIM Investment Trends Quarterly.



NationalTransactionBreakdown

National Market Analysis - 4Q 2006RERC Price vs. Risk Assessment

OfficeStrong Upside Dallas/

Ft. Worth Denver Baltimore

Fully Priced San Francisco Raleigh Columbus

IndustrialStrong Upside Orlando Minneapolis Tucson

Fully Priced Detroit Boston Austin

RetailStrong Upside Tampa Denver Boston

Fully Priced Columbus Austin Richmond

ApartmentStrong Upside Honolulu Austin Pittsburgh

Fully Priced New York City Salt Lake City Oklahoma City

HotelStrong Upside Chicago Atlanta Phoenix

Fully Priced Cleveland Portland Northern New Jersey


National Transaction Breakdown (Jan. 1, 2006 - Dec. 31, 2006)Office Industrial Retail Apartment Hotel Total

Volume (in millions)<$2 million $2,307 $4,047 $4,070 $5,669 $220 $16,312

$2-5 milion $3,910 $5,701 $6,222 $5,910 $926 $22,668

>$5 million $155,131 $32,581 $50,896 $87,663 $33,689 $359,961

All $161,348 $42,328 $61,188 $99,242 $34,835 $398,942


$2-5 milion $167 $96 $216 $128,810 $59,767 –

>$5 million $209 $104 $250 $126,410 $137,649 –

All $167 $83 $169 $107,833 $110,713 –

Median of all $137 $66 $123 $86,170 $82,776 –

Capitalization Rates (All)Range 4.7 - 10.5 4.8 - 11 4.4 - 10.4 3.8 - 10.6 5.7 - 12.3 3.8 - 12.3

Average 7.2 7.4 6.9 6.3 8.7 7.3



EastRegionTransactionBreakdown

East Regional Analysis - 4Q 2006Market Assessment

OfficeStrong Upside Baltimore

Fully Priced Raleigh

IndustrialStrong Upside Baltimore

Fully Priced Boston

RetailStrong Upside Boston

Fully Priced Richmond

ApartmentStrong Upside Pittsburgh

Fully Priced New York City

HotelStrong Upside Hartford

Fully Priced Northern New Jersey


Regional Transaction Price Breakdown/TiersEast Region Transaction Breakdown (Jan. 1, 2006 - Dec. 31, 2006)

Office Industrial Retail Apartment Hotel TotalVolume (in millions)<$2 million $452 $789 $817 $888 $28 $2,974

$2-5 milion $881 $1,080 $1,264 $1,749 $146 $5,119

>$5 million $62,999 $8,110 $12,157 $30,547 $8,698 $122,511

All $64,287 $9,914 $14,178 $33,144 $8,861 $130,384


$2-5 milion $157 $97 $239 $158,133 $48,372 –

>$5 million $258 $127 $338 $174,721 $182,367 –

All $200 $84 $199 $128,020 $147,952 –

Median of all $146 $57 $124 $87,004 $94,017 –

Capitalization Rates (All)Range 4.7 - 10 4.8 - 9.9 4.7 - 10.4 4.2 - 9 5.9 - 11.5 4.2 - 11.5

Average 7.1 7.3 6.9 6.1 8.4 7.2

■ Although the average transaction-based capi-talization rate for industrial properties in the East region is lower than that of the nation, the average sale price per square foot of industrial space is only $1 below the national average.

■ The transaction-based capitalization rate for the retail sector in the East region as well as for the nation as a whole is 6.9 percent. However, since properties in the East region are selling at a much higher average price per square foot than nationally, it is likely that some overpricing exists for retail space in the East region.






East Region Office Transaction Averages (Jan. 1, 2006 - Dec. 31, 2006)Price/Sq. Ft. Cap Rate

Baltimore $137 6.9

Boston $199 6.5

Charlotte $147 7.0

Hartford $104 7.3

New York $382 6.4

Northern New Jersey $163 6.9

Norfolk $134 7.2

Philadelphia $141 7.0

Pittsburgh $86 8.0

Raleigh $118 7.8

Richmond $97 7.6

Washington D.C. $293 6.3

NATIONAL $167 7.2Unit prices based on data derived from samples of commercial transactions on local, regional, and national levels.Capitalization rates based upon available transaction information, survey respondents, and NCREIF Index Returns.Source: RERC. Content cannot be duplicated or reproduced without expressed written consent of RERC.


2�Investment TrendsQuarterly





East Region Industrial Transaction Averages (Jan. 1, 2006 - Dec. 31, 2006)Price/Sq. Ft. Cap Rate

Baltimore $71 6.8

Boston $97 7.5

Charlotte $61 7.5

Hartford $55 7.3

New York $202 6.7


Norfolk $76 7.9


Pittsburgh $63 7.7

Raleigh $71 7.7

Richmond $60 7.7









East Region Retail Transaction Averages (Jan. 1, 2006 - Dec. 31, 2006)Price/Sq. Ft. Cap Rate

Baltimore $133 7.1

Boston $161 6.5

Charlotte $134 7.1

Hartford $102 6.6

New York $434 6.2


Norfolk $129 6.9


Pittsburgh $187 7.1

Raleigh $156 6.2

Richmond $156 8.3









East Region Apartment Transaction Averages (Jan. 1, 2006 - Dec. 31, 2006)Price/Sq. Ft. Cap Rate

Baltimore $99,515 5.6

Boston $173,876 5.8

Charlotte $54,411 6.2

Hartford $66,797 6.0

New York $176,632 5.8

Northern New Jersey $107,787 5.9

Norfolk $71,688 6.3

Philadelphia $78,595 6.2

Pittsburgh $35,357 5.9

Raleigh $67,246 6.0

Richmond $86,697 7.2

Washington D.C. $136,166 5.9

NATIONAL $107,833 6.3Unit prices based on data derived from samples of commercial transactions on local, regional, and national levels.Capitalization rates based upon available transaction information, survey respondents, and NCREIF Index Returns.Source: RERC. Content cannot be duplicated or reproduced without expressed written consent of RERC.




HotelPropertySector



East Region Hotel Transaction Averages (Jan. 1, 2006 - Dec. 31, 2006)Price/Sq. Ft. Cap Rate

Baltimore $216,074 8.2

Boston $139,013 8.6

Charlotte $90,914 8.3

Hartford $50,612 8.1

New York $351,547 8.4

Northern New Jersey $134,383 9.2

Norfolk $52,082 8.4

Philadelphia $94,847 8.3

Pittsburgh $61,302 8.5

Raleigh $81,749 8.8

Richmond $27,709 8.5

Washington D.C. $231,187 7.9





SouthRegionTransactionBreakdown

South Regional Analysis - 4Q 2006Market Assessment

OfficeStrong Upside Dallas/Ft. Worth

Fully Priced Oklahoma City

IndustrialStrong Upside Orlando

Fully Priced Austin

RetailStrong Upside Tampa

Fully Priced Austin

ApartmentStrong Upside Austin

Fully Priced Oklahoma City

HotelStrong Upside Atlanta

Fully Priced Orlando*Relative earnings are based on RERC’s economic cashflow fore-cast. Market risk assessment is based on a measure of the average sale price vs. relative earnings among the 48 markets RERC tracks each quarter.

Regional Transaction Price Breakdown/TiersSouth Region Transaction Breakdown (Jan. 1, 2006 - Dec. 31, 2006)

Office Industrial Retail Apartment Hotel TotalVolume (in millions)<$2 million $624 $1,016 $1,310 $924 $68 $3,940

$2-5 milion $938 $1,223 $2,081 $1,073 $330 $5,646

>$5 million $25,735 $7,093 $13,161 $23,008 $8,648 $77,644

All $27,256 $9,281 $16,472 $24,975 $9,031 $87,015


$2-5 milion $147 $72 $181 $73,179 $60,230 –

>$5 million $153 $77 $183 $90,463 $109,868 –

All $130 $64 $140 $75,192 $94,532 –

Median of all $112 $54 $106 $60,648 $82,562 –

Capitalization Rates (All)Range 4.9 - 10.5 4.8 - 9.8 4.8 - 9.3 4.1 - 9.3 6.2 - 11.8 4.1 - 11.8

Average* 7.4 7.3 7.1 6.5 8.9 7.4

■ The industrial sector in the South region is strong. Regionally, properties are selling for an average price per square foot of $64, which is well below the national average price of $83 per square foot. Even with an average sale price substantially lower than that of the nation, average transaction-based capitalization rates for the South region also are slightly below that of the nation.

■ The average transaction-based capitalization rates for all of the property sectors in the South region are 10 to 20 basis points higher than the averages for the nation. Following suit, average selling prices for all the property types were lower than those nationally.






South Region Office Transaction Averages (Jan. 1, 2006 - Dec. 31, 2006)Price/Sq. ft. Cap Rate

Atlanta $139 7.3

Austin $136 6.7

Dallas/Ft. Worth $119 7.3

Houston $102 7.4

Memphis $74 7.9

Miami $185 6.5

Nashville $97 8.4

New Orleans/Baton Rouge $93 7.8

Oklahoma City $67 8.0

Orlando $157 7.1

San Antonio $93 7.3

Tampa $134 7.0








South Region Industrial Transaction Averages (Jan. 1, 2006 - Dec. 31, 2006)Price/Sq. ft. Cap Rate

Atlanta $58 7.3

Austin $86 7.6


Houston $51 7.4

Memphis $45 7.6

Miami $89 6.9

Nashville $51 7.0



Orlando $73 6.4

San Antonio $57 7.8

Tampa $75 6.8








South Region Retail Transaction Averages (Jan. 1, 2006 - Dec. 31, 2006)Price/Sq. ft. Cap Rate

Atlanta $159 7.1

Austin $172 7.4


Houston $144 7.2

Memphis $135 7.4

Miami $197 6.4

Nashville $113 7.0



Orlando $194 6.8

San Antonio $111 7.1

Tampa $148 6.9








South Region Apartment Transaction Averages (Jan. 1, 2006 - Dec. 31, 2006)Price/Unit Cap Rate

Atlanta $64,591 6.4

Austin $67,568 5.8

Dallas/Ft. Worth $55,788 7.0

Houston $62,949 6.4

Memphis $37,753 6.6

Miami $112,563 5.5

Nashville $57,827 6.7

New Orleans/Baton Rouge $54,488 6.8

Oklahoma City $34,935 7.4

Orlando $91,810 6.1

San Antonio $61,344 7.1

Tampa $82,416 6.4





HotelPropertySector



South Region Hotel Transaction Averages (Jan. 1, 2006 - Dec. 31, 2006)Price/Unit Cap Rate

Atlanta $88,189 8.2

Austin $107,203 9.0

Dallas/Ft. Worth $88,875 8.8

Houston $78,368 9.1

Memphis $47,864 8.8

Miami $119,219 8.7

Nashville $97,913 9.4

New Orleans/Baton Rouge $97,252 8.9

Oklahoma City $79,531 9.2

Orlando $77,102 9.2

San Antonio $80,302 9.2

Tampa $85,129 8.2





MidwestRegionTransactionBreakdown

Midwest Regional Analysis - 4Q 2006Market Assessment

OfficeStrong Upside Chicago

Fully Priced Columbus

IndustrialStrong Upside Minneapolis

Fully Priced Detroit

RetailStrong Upside Cincinnati

Fully Priced Columbus

ApartmentStrong Upside St. Louis

Fully Priced Cleveland

HotelStrong Upside Chicago

Fully Priced Cleveland*Relative earnings are based on RERC’s economic cashflow fore-cast. Market risk assessment is based on a measure of the average sale price vs. relative earnings among the 48 markets RERC tracks each quarter.

Regional Transaction Price Breakdown/TiersMidwest Region Transaction Breakdown (Jan. 1, 2006 - Dec. 31, 2006)

Office Industrial Retail Apartment Hotel Total

Volume (in millions)

<$2 million $366 $734 $802 $793 $27 $2,721

$2-5 milion $511 $1,012 $1,071 $559 $173 $3,325

>$5 million $20,592 $3,963 $8,580 $5,780 $3,268 $42,183

All $21,449 $5,669 $10,417 $7,097 $3,463 $48,095

Unit Price Averages

<$2 million $72 $43 $80 $67,512 $26,791 –

$2-5 milion $125 $61 $196 $56,865 $38,901 –

>$5 million $146 $60 $199 $74,944 $106,884 –

All $111 $49 $126 $67,913 $77,324 –

Median of all $95 $41 $89 $53,063 $57,292 –

Capitalization Rates (All)

Range 5.3 - 10.5 5.3 - 11 5 - 9.5 4.1 - 10.6 6.3 - 12.3 4.1 - 12.3

Average 7.6 7.8 7.2 6.9 9.1 7.7

■ The average transaction-based capitalization rates for all of the property types in the Mid-west region are higher than those found for the national property sectors. In addition, average sale prices for all property types in the Midwest region are well below the national averages.

■ The Midwest region had the lowest average price per square foot/unit for all of the property types tracked by RERC when compared to av-erage prices in the other three regions. Also, the average transaction-based capitalization rates for all of the property types within the region are higher than those reported for the other regions.






Midwest Region Office Transaction Averages (Jan. 1, 2006 - Dec. 31, 2006)Price/Unit Cap Rate

Chicago $151 7.0

Cincinnati $90 7.7

Cleveland $94 7.7

Columbus $90 8.4

Detroit $123 7.7

Indianapolis $99 7.2

Kansas City $108 7.9

Milwaukee $98 7.4

Minneapolis $120 7.5

Omaha $112 7.5

St. Louis $105 7.8

Toledo $102 7.4








Midwest Region Industrial Transaction Averages (Jan. 1, 2006 - Dec. 31, 2006)Price/Unit Cap Rate

Chicago $63 7.0

Cincinnati $50 8.3

Cleveland $41 7.6

Columbus $41 8.2

Detroit $57 8.8


Kansas City $68 7.8

Milwaukee $41 7.6

Minneapolis $56 7.1

Omaha $42 8.4

St. Louis $53 7.8

Toledo $44 7.9








Midwest Region Retail Transaction Averages (Jan. 1, 2006 - Dec. 31, 2006)Price/Unit Cap Rate

Chicago $188 6.7

Cincinnati $86 6.8

Cleveland $103 7.5

Columbus $133 7.6

Detroit $143 7.5


Kansas City $135 7.4

Milwaukee $117 7.3

Minneapolis $130 7.1

Omaha $77 6.8

St. Louis $91 7.1

Toledo $120 7.5








Midwest Region Apartment Transaction Averages (Jan. 1, 2006 - Dec. 31, 2006)Price/Unit Cap Rate

Chicago $96,460 6.2

Cincinnati $39,195 7.0

Cleveland $42,858 7.8

Columbus $42,007 6.9

Detroit $46,438 7.1

Indianapolis $60,126 7.8

Kansas City $48,421 7.0

Milwaukee $51,357 6.3

Minneapolis $82,897 5.5

Omaha $50,976 6.4

St. Louis $49,415 6.4

Toledo $38,934 8.5





HotelPropertySector



Midwest Region Hotel Transaction Averages (Jan. 1, 2006 - Dec. 31, 2006)Price/Unit Cap Rate

Chicago $129,393 8.4

Cincinnati $36,046 9.1

Cleveland $66,898 9.1

Columbus $57,281 9.1

Detroit $63,973 9.3

Indianapolis $101,071 9.1

Kansas City $63,715 9.0

Milwaukee $33,491 9.1

Minneapolis $73,366 9.8

Omaha $34,667 9.2

St. Louis $34,066 9.1

Toledo NA 9.1





WestRegionTransactionBreakdown

West Regional Analysis - 4Q 2006RERC Price vs. Risk Assessment

OfficeStrong Upside Denver

Fully Priced San Francisco

IndustrialStrong Upside Tucson

Fully Priced Sacramento

RetailStrong Upside Denver

Fully Priced Honolulu

ApartmentStrong Upside Honolulu

Fully Priced Salt Lake City

HotelStrong Upside Phoenix

Fully Priced Portland*Relative earnings are based on RERC’s economic cashflow fore-cast. Market risk assessment is based on a measure of the average sale price vs. relative earnings among the 48 markets RERC tracks each quarter.

Regional Transaction Price Breakdown/TiersWest Region Transaction Breakdown (Jan. 1, 2006 - Dec. 31, 2006)

Office Industrial Retail Apartment Hotel Total

Volume (in millions)

<$2 million $864 $1,508 $1,140 $3,065 $98 $6,675

$2-5 milion $1,776 $2,621 $2,028 $2,703 $317 $9,445

>$5 million $43,944 $11,783 $15,278 $26,759 $12,675 $110,439

All $46,494 $15,832 $18,392 $32,457 $13,079 $126,255

Unit Price Averages

<$2 million $132 $105 $135 $119,018 $54,813 –

$2-5 milion $197 $120 $247 $146,036 $77,097 –

>$5 million $224 $121 $271 $136,561 $147,752 –

All $191 $113 $209 $127,901 $117,874 –

Median of all $172 $102 $172 $112,500 $82,776 –

Capitalization Rates (All)

Range 4.7 - 9.6 4.9 - 9.3 4.4 - 9.6 3.8 - 8.3 5.7 - 11.3 3.8 - 11.3

Average 6.9 7.0 6.6 5.8 8.4 6.9

■ Although the average price per unit for hotel properties in the West region is slightly higher than the average price per unit for hotel prop-erties on a national basis, the average trans-action-based capitalization rate for the West region is substantially lower than the national average. This indicates a slightly higher return on the sale of hotel properties in the West re-gion compared to returns on sales nationally.

■ Average sale prices for all property types in the West region are higher than those reported nationally. Average transaction-based capital-ization rates in the West region for all property types are lower than those nationally.






West Region Office Transaction Averages (Jan. 1, 2006 - Dec. 31, 2006)Price/Unit Cap Rate

Denver $130 7.0

Honolulu $242 6.3

Las Vegas $246 6.7

Los Angeles $228 6.3

Phoenix $167 6.8

Portland $139 7.1

Sacramento $201 7.0

Salt Lake City $116 7.5

San Diego $245 6.4

San Francisco $250 7.1

Seattle $211 6.6

Tucson $140 7.7








West Region Industrial Transaction Averages (Jan. 1, 2006 - Dec. 31, 2006)Price/Unit Cap Rate

Denver $79 7.1

Honolulu $137 7.3

Las Vegas $149 7.1


Phoenix $97 7.3

Portland $95 7.1

Sacramento $110 7.4


San Diego $152 6.7


Seattle $112 6.8

Tucson $71 7.0








West Region Retail Transaction Averages (Jan. 1, 2006 - Dec. 31, 2006)Price/Unit Cap Rate

Denver $157 6.8

Honolulu $295 5.8

Las Vegas $249 6.5


Phoenix $203 6.6

Portland $174 6.7

Sacramento $265 6.4


San Diego $261 6.0


Seattle $192 6.4

Tucson $142 7.5








West Region Apartment Transaction Averages (Jan. 1, 2006 - Dec. 31, 2006)Price/Unit Cap Rate

Denver $74,082 6.1

Honolulu $177,866 6.1

Las Vegas $85,380 5.7

Los Angeles $147,969 5.2

Phoenix $80,283 5.7

Portland $72,989 6.2

Sacramento $96,449 5.9

Salt Lake City $69,796 6.6

San Diego $154,284 5.5

San Francisco $180,778 5.1

Seattle $124,951 5.5

Tucson $66,628 6.5





HotelPropertySector



West Region Hotel Transaction Averages (Jan. 1, 2006 - Dec. 31, 2006)Price/Unit Cap Rate

Denver $106,225 9.0

Honolulu $166,836 8.4

Las Vegas $136,312 8.4

Los Angeles $151,848 8.2

Phoenix $119,266 8.2

Portland $29,353 8.4

Sacramento $74,631 7.6

Salt Lake City $92,970 8.3

San Diego $153,071 8.4

San Francisco $167,755 8.4

Seattle $96,157 8.8

Tucson $71,195 8.3





Gold

SilverProperty Politics, Wayne D’Amico, Essex, CT

BronzeAllen Feltman Real Estate, Inc., Allen Feltman, Dallas, TX

Allied Properties and Management, Greg Heinemann, Minneapolis/St. Paul, MN

Aronov Realty Brokerage, Inc., Michael Griffin, Montgomery, AL

Bohm CRE, LLC, Jon Sander, Minneapolis, MN

Boylan Development, Kevin Cochran, Raleigh, NC

CB Richard Ellis, Hock Hockensmith, Charlottesville, VA

CB Richard Ellis, Sherrie Wade, San Antonio, TX

Century 21 Boardwalk, Suzanne Riley, Monistee, MI

Century 21 Commercial, Chris Schreiber, Sandpoint, ID

Century 21 Samia Realty, Barry Weyland, Sandford, ME

Chico’s FAS, Inc., Susan Robinson, Ft. Meyers, FL

Cohen Financial, Lyle W. Preest, Tampa, FL

Coldwell Banker Commercial NRT, Connie Doumenis, Miami, FL

Contributors

Coldwell Banker Commercial NRT, Steven Hughes, Tampa, FL

Coldwell Banker Reehl Properties, Dennis Frodsham, Mobile, AL

Cole Properties, Neil Victor, Huntsville, AL

Colliers, William Melin, Minneapolis, MN

Colliers International, Paul Kenny, Ketchum, ID

Colliers Pinkard, Stuart Rienhoff, Baltimore, MD

Collins Commercial Properties, Inc., Ray Collins, Winston-Salem, NC

Commercial Investment Services, Rob Stefka, North Platte, NE

Cornwall Medican Development, Diane Bongiorni, Alexandria, VA

Difranco Realty, Inc., Mark Difranco, Westford, MA

DT Properties of Georgia, Inc., Fred Thomas, Atlanta, GA

Eagle Commercial Realty Services, Nicholas Miner, Phoenix, AZ

Edwards Realty Services, Richard Edwards, Miami, FL

ERA D. Lee Edwards Rently, Inc., D. Lee Edwards, San Antonio, TX

ERA Residential/Commercial, Augie Lewis, Atlanta, GA

First Commercial Real Estate & Advisory Services, Brian Heffernan, Stockton, CA

GVA Advantis, Perry Moss, Richmond, VA

Hardin & Company, Dennis Hardin, Bozeman, MT

Hartsook Real Estate, David Hartsook, Columbus, OH

Iowa Appraisal, Gene Nelsen, Des Moines, IA

Keller Williams Commercial, Peggy Littleton, Colorado Springs, CO

Larkin Commercial Properties, Jay Verro, Albany, NY

Larsen Baker LLC, George Larsen, Tucson, AZ

Legend Properties, Inc., David DePetris, Conshohocken, PA

Long and Foster, D. Scott Smith, Washington, DC

Long and Foster Real Estate, Inc., Samuel York, Jr., Mitchellville, MD

Long and Foster Realtors, Caroline Alsterberg, Richmond, VA

Long Commercial Real Estate Services, James Robertson, Tucson, AZ



McLennan Commercial Properties, Charles Wierciuski, Chicago, IL

Mid-Atlantic Commercial, R. Dale Mueller, Yorktown, VA

Mohr Partners, Meg Thomas, Dallas/Ft. Worth, TX

NAI BT Commercial, David Buurma, Napa, CA

NAI Capital, Inc., Jack Dwyer, Los Angeles, CA

NAI Keystone Commercial & Industrial, LLC, John Buccinno, Auburn, PA

Navarro Real Estate, Marty Navarro, Greenville, SC

Networking Investment and Group Funds, Inc., Kim Demetrius-Bras-well, Fort Lauderdale, FL

NexCore Development, Bryan Barnes, Denver, CO

Norris & Stevens, Inc., R. Daniel Bessner, Portland, OR

Park Capital Inc., Michael Merker, Ontario, Canada

Piedmont Properties/CORFAC International, Scott Hensley, Charlotte, NC

Plaza Real Estate, Paul Daemen, Witchita, KS

Port San Antonio, Giancarlo Carriero, San Antonio, TX

Premier Apartment Advisors, Richard Knutson, San Francisco, CA

Prudential Commercial Real Estate/C. Dan Joyner Company, Jack Snedigar, Greenville, SC

RB Courtyard, Joanne Yaghdijian, San Diego, CA

RE Client Solutions, Inc., Peter Ialiano, CA

RE/MAX Commercial Professionals, Inc., Gailt Rozen, Las Vegas, NV

RE/MAX Commercial Professionals, Inc., Alon Ventura, Las Vegas, NV

RE/MAX Commercial Services Group, Blair Gilbert, Philadelphia, PA

RE/MAX Equity Group, Ron Ross, Bend, OR

RE/MAX Equity Group, Inc., Carl Camenzind, Salem, OR

RE/MAX Fifth Ave., Colleen McAleer-Ellison, Sequim, WA

RE/MAX of Southern Marin, Maryann Pearson, Mill Valley, CA

RE/MAX Realty Group, Gerald Marino, Ft. Meyers, FL

RE/MAX Spirit Inc., John Hill, Toronto, Canada

Routh-Hurlbert RE, Chuck Joseph, Youngstown, OH

S.J. Financial Group, Steve Jacquermin, St. Louis, MO

Sauve Riegel Inc., Mike Dostalek, Pasadena/Los Angeles, CA

Shirley Zeitlin & Co., Jonathan Smith, Brentwood, TN

Southpace Properties, Inc., Andrew Loveman, Birmingham, AL

Sperry Van Ness, Scott Kim, Venice, CA

Sperry Van Ness, Dewey Struble, Reno, NV

Sperry Van Ness Lillie & Associates, LLC, Gary Lillie, Ann Arbor, MI

Sperry Van Ness/SVN Investor Realty LLC, Ralph Duarte, Washing-ton, DC

Summit Real Estate, Stephen Lombardi, IA/IL

T.R.B. & Associates, Inc., Thomas Blakely, Boston, MA

Temecula Valley Bank, Reese Reeves, San Diego, CA

Tierra Vista Realty, John Dohm, Ft. Lauderdale, FL

The ALCOR Group, David da Cunha, New Orleans, LA

The Krausz Company, Jay Krigsman, Cerritos, CA

The Ruthvens, Greg Ruthvens, Lakeland, FL

The Schenk Company, Inc., Greg Schenk, Columbus, OH

The Schouten Commercial Group, Paul Schouten, Sarasota, FL

Total Commercial, Joe Pelayo, Broward, FL

Triad Properties, Mike Swink, Atlanta, GA

US General Services Administration, Mark Montgomery, Chicago, IL

Valkyrie Group LLC, Gene Carlson, Lake Orion, MI

Welsh Companies Florida, Inc., Bruce Preble, Naples, FL

Wes Walters Realty, Inc., Wes Walters, Austin, TX

Westvest Associates, Inc., Luciano Rappa, FL

Vic Jameson, GA

David Leyh, Witchita, KS

David Saldivar, CA

John Wallace, San Diego, CA

Thank you to all who contributed to this report.

Contributors



Scope&MethodologyThe analysis provided in the RERC/CCIM Investment Trends Quarterly is conducted by Real Estate Research Corporation (RERC). The information is gathered in raw form from surveys sent to CCIM designees and candidates, and from sales transactions collected from various sources, including CCIM members, Catylist Inc., various key commercial information exchange organizations (CIEs), the media, assessors’ offices, RERC contacts in the marketplace, and other reliable public and private resources. All sales transactions are aggregated, analyzed, and reported on by RERC. Additional data and forecasts are provided courtesy of the REALTORS® Commercial Alliance and Torto Wheaton Research.

Published quarterly, the RERC/CCIM Investment Trends Quarterly report provides timely insight into transaction volume, pricing, and capitalization rates for the core income-producing properties.

RERC Definitions

Capitalization Rate: The capitalization rate is usually defined as the first year “stabilized” net operating income (NOI) (NOI is before capital expenditures—tenant improvements, leasing commissions, reserves—and debt service) divided by the present value (or purchase price).

RERC Capitalization Rate and Ranges: Capitalization rates and ranges listed throughout this report are based on RERC’s proprietary realized capitalization rate model, which includes available transaction-based capitalization rates, survey responses, NCREIF Index Returns, and other market factors, but is heavily weighted toward transaction-based capitalization rates for each property type within each market.

National/Regional Market Analysis: RERC ranks the investment potential of the metros and property types it covers based on various space market and financial market criteria, including pricing, capitalization rates, vacancy rates, and other factors.

Investment Conditions Rating: A rating of 1 through 10 (with 10 being high) reflecting survey respondents’ collective views of the investment environment for a particular property type in comparison with other property types. The rating may take into account supply and demand, economic conditions, pricing, rental rates, or other factors.

NCREIF Definitions

NCREIF: The National Council of Real Estate Investment Fiduciaries (NCREIF) is a independent organization dedicated to the compilation, validation, and distribution of performance data for the institutional real estate investment community.

Total Return: The total return includes appreciation (or depreciation), realized capital gain (or loss), and income. It is computed by adding the income and capital appreciation return on a quarterly basis.

Implied Cap Rate (Income Return): The implied capitalization rate measures the portion of return attributable to each property’s NOI. It is computed by dividing the total NOI by the total quarterly investment.

Capital Appreciation Return: The capital appreciation return measures the change in market value adjusted for any capital improvements/expenditures and partial sales divided by the average quarterly investment.

Annual and Annualized Returns: Annual returns are computed by chain linking quarterly rates of return to produce time-weighted rates of return for the annual and annualized periods under study. For time periods beyond 1 year, the annualized returns are expressed as the annual compounded rate of return.

Allocation: The distribution, expressed as a percentage of the overall investment, in a particular geographic area by property type.

For a detailed description of the proceeding returns as well as the calculations used by NCREIF to derive these figures, please visit http://www.ncreif.org/indices.

The combined returns are the weighted average of the returns for each property type according to the proportionate market value of properties surveyed relative to the total market values surveyed during a time period.

RERC Defined Regions and MSAs

West: Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, Wyoming

Midwest: Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Wisconsin

South: Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Oklahoma, Tennessee, Texas

East: Connecticut, Delaware, Kentucky, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, Washington D.C., West Virginia

Metropolitan Statistical Area (MSA): A geographic unit comprised of one or more counties around a central city or urbanized area with 50,000 or more population. Contiguous counties are included if they have close social and economic links with the area’s population nucleus.

With a few exceptions, the MSAs within this report coincide with the U.S. Office of Management and Budget’s December 2005 definitions for each MSA. For example, St. Paul, Minn., and Bloomington, Minn., as well as many other suburbs, are included within the Minneapolis MSA.

Note of Caution: It is imperative to exercise caution when comparing the data contained herein to previous reports published by RERC. The data herein is not “fixed,” and will be updated and changed as additional transaction information is gathered and analyzed.

Disclaimer: This publication is designed to provide accurate information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal or accounting service. The publisher advises that no statement in this issue is to be construed as a recommendation to make any real estate investment or to buy or sell and security or as investment advice. The examples contained in the publication are intended for use as background on the real estate industry as a whole, not as support for any particular real estate investment or security. Although the RERC/CCIM Investment Trends Quarterly uses only sources that it deems reliable and accurate, Real Estate Research Corporation (RERC) does not warrant the accuracy of the information contained herein.

Documents

First Quarter 2007 Report Investment Trends Vol. 3, No. 1 ... · information retrieval system, without the written permission of RERC and the CCIM Institute. Investment Trends iii